Month: September 2022

So what was it? A ‘fiscal event’? A Mini Budget? Or a full-blown Budget from a new Chancellor determined to take the UK in a very different direction from previous occupants of 11 Downing Street? As we will see in more detail below, reactions to the measures introduced by Kwasi Kwarteng on Friday September 23rd were sharply divided.

Saturday morning’s papers, though, were quick to deliver their verdict. ‘At last! A True Tory Budget’ was the Mail’s headline. ‘We’ve got the courage to bet big on Britain,’ said the Express. The gambling theme was repeated in other papers. ‘Kwarteng gambles on biggest tax cuts in half a century’ was the Telegraph headline, while the Times went with ‘Truss’s great tax gamble’.

Irrespective of whether it was a ‘fiscal event’ or a full Budget, there was a lot to digest. We’ve detailed all the measures below, but first, let’s look at the background to Kwasi Kwarteng’s radical measures.

The political background

In July 2019, Boris Johnson replaced Theresa May as leader of the Conservative Party and Prime Minister. Liz Truss, MP for South West Norfolk and a supporter of Johnson in his leadership campaign, was appointed International Trade Secretary. Lower down the ministerial ladder, Kwasi Kwarteng, the MP for Spelthorne, was made a Minister of State at the Department for Business, Energy and Industrial Strategy.

Five months later, Boris Johnson led the Conservatives to an 80-seat majority in the General Election on a promise to ‘Get Brexit Done’. His position appeared to be impregnable, but as we now know, he was forced to resign in the summer of 2022. The subsequent battle to replace him eventually came down to a straight fight between Liz Truss and former Chancellor – and early favourite – Rishi Sunak. Eventually, Truss won out, after endearing herself to Conservative members with a series of commitments to cut taxes.

She became Prime Minister on September 6th and, with the Queen’s death just two days later, also became the first Prime Minister to serve both a king and queen for well over a hundred years. Many people had expected Sunak’s successor, Nadhim Zahawi, to continue as Chancellor, but instead, Liz Truss opted for Kwasi Kwarteng – widely regarded as being on the right of the Conservative Party and a staunch advocate of tax cuts.

The death of the Queen, the national period of mourning and the approaching party conference season meant that the timetable for the fiscal event was shortened. Budget speeches are normally delivered on Wednesday lunchtime, after Prime Minister’s Questions. This time, Kwarteng delivered his package of measures on Friday morning, ahead of the Labour Party Conference in the last week of September and the Conservative Conference the following week.

The economic background

‘Neither a borrower nor a lender be.’ Many of you will know that famous quotation from Hamlet, but over the last two years, the UK Government has had little choice other than to be a borrower – and to be a borrower on an almost unprecedented scale.

A document published by the House of Commons library revealed that borrowing for 2020/21 was £167 billion higher than had been planned before the pandemic. Total spending to deal with coronavirus was put in the range of £310 billion to £410 billion.

That document, however, was optimistic about the cost of servicing the extra borrowing. Published in March 2022, it said: “The cost of borrowing is currently very low [but the public finances are] vulnerable to an increase in these costs.”

This, of course, is exactly what has happened. The rising cost of energy and the global supply chain crisis has caused inflation on a scale not seen for years: in order to try to keep a lid on inflation, central banks have increased interest rates – which, in turn, have increased the cost of servicing the UK’s debt.

And there was more debt to come. Within days of becoming PM, Liz Truss had committed to borrowing ‘up to £150 billion’ in order to cap a typical household’s energy bill at £2,500 a year until 2024. “Extraordinary times call for extraordinary measures,” she said.

Meanwhile, the cost of servicing the equally extraordinary borrowing was rising. On September 22nd, the Bank of England raised interest rates by 0.5% to 2.25% and conceded that the ‘UK may already be in recession’.

Rising rates meant that the Government borrowed £11.8 billion in August, almost twice as much as the Treasury forecasters had expected, as high inflation pushed interest payments to an August record. The inflation rate for August – at 9.9% – was down very slightly on July’s 10.1%, but there are plenty of forecasters ready to suggest that it could go much higher next year. Despite the action on energy bills, UK consumer confidence slipped into negative territory for the first time since 2020.

The tax cuts – including the changes to stamp duty, cuts in income tax and the reversal of the rise in National Insurance – had been well trailed in advance. Supporters of the Chancellor were looking forward to the speech, while critics were already sharpening their knives, with the Institute for Fiscal Studies warning that “the tax cuts gamble will make [the UK’s] debt unsustainable”.

The speech

Opening remarks
Kwasi Kwarteng began by acknowledging that the cost of energy is the issue that is “worrying British people the most”, and described the recent support for households and businesses as “one of the most significant interventions the British state has ever made”.

However, he stressed that high energy costs are not the only challenge confronting the UK, as growth is “not as high as it should be”. Mr Kwarteng therefore pledged “a new approach for a new era”, with lower taxes at the heart of his strategy.

Personal taxation and allowances
What A cut in the basic rate of income tax, from 20% to 19%.
When April 2023.
Comment The planned reduction in the basic rate of income tax to 19p has been brought forward by one year. The Government says this means more than 31 million people will get £170 more per year on average, and works out to a tax cut of over £5 billion a year. Mr Kwarteng says this also makes the UK’s income tax system one of the most competitive in the world.

There will be a one-year transitional period for Relief at Source (RAS) pension schemes to allow people to continue to claim tax relief at 20%. That means that even though the income tax rate will be 19%, personal pension contributions will get 20% tax relief at source.

What Top rate of income tax scrapped and single higher rate to be introduced.
When April 2023.
Comment The highest rate of income tax currently stands at 45% and is paid by anyone who earns more than £150,000 a year. But from April 2023, a single higher rate of income tax of 40% will be introduced, a move that Mr Kwarteng believes will simplify the tax system, make Britain more competitive, reward work and incentivise growth.

What Increase in dividend tax rates to be reversed.
When April 2023.
Comment The 1.25% increase in dividend tax rates is to be reversed, which will benefit 2.6 million dividend taxpayers with average savings of £345 in 2023-24. Additional rate taxpayers will also benefit from the scrapping of the additional rate of dividend tax. The Government believes the move will support entrepreneurs and investors, which can in turn drive economic growth.

What Stamp duty cut.
When September 23rd 2022.
Comment The threshold at which Stamp Duty Land Tax (SDLT) must be paid in England and Northern Ireland has been doubled to £250,000 for all home purchases.

The threshold at which first-time buyers are liable to pay SDLT, meanwhile, has increased from £300,000 to £425,000, and the value of the property on which first-time buyers can claim relief goes up from £500,000 to £625,000.

Mr Kwarteng says the measures take 200,000 people “out of paying stamp duty altogether” and will be a permanent change to the SDLT system.

Business investment and taxation
What Corporation tax increase to be cancelled.
When Immediately.
Comment The Government had planned to increase corporation tax from 19% to 25% in April 2023, but this will no longer go ahead.

Mr Kwarteng says this will give the UK the lowest rate of corporation tax in the G20 and plough almost £19 billion a year back into the economy. This, he maintains, gives businesses more money to “reinvest, create jobs, increase wages or pay the dividends that support our pensions”.

What Removing caps on bankers’ bonuses.
When Immediately.
Comment The cap on bonuses bankers are allowed to receive on top of their salaries, which was introduced by the European Union in 2014 after the global financial crisis, has been scrapped.

Under the previous system, bankers’ bonuses could not be higher than twice their annual salary without the agreement of shareholders. However, the Government believes that payment in bonuses “aligns the incentives of individuals with those of the bank”, which can in turn support economic growth.

Although the move is likely to prove controversial, Mr Kwarteng has insisted that the bonus cap “never capped total remuneration”, and instead pushed up the basic salaries of bankers or drove activity outside Europe.

In his statement, he argued that a strong UK economy depends on a strong financial services sector, with global banks creating jobs, paying taxes and investing “here in London, not Paris, not Frankfurt, not New York”.

What New investment zones.
When No dates confirmed.
Comment The Government will liberalise planning rules in designated sites, releasing land and accelerating development. This will be accompanied by tax cuts, with enhanced tax relief for structures and buildings, 100% first year allowance on qualifying investments in plant and machinery, and no stamp duty payments on purchases of land and buildings for commercial or new residential development.

Newly occupied business premises will be exempt from business rates, and if a company residing in the designated site hires a new employee to work in the tax site for at least 60% of the time, they will pay no National Insurance on the first £50,270 that they earn.

What Simplifying IR35 rules.
When April 2023.
Comment Workers who provide services via an intermediary will be responsible for determining their employment status and paying the appropriate amount of National Insurance and tax.

The Government believes reforms to off-payroll working introduced in 2017 and 2021 have added “unnecessary complexity and cost for many businesses”. As a result, it hopes this latest change will “free up time and money for businesses that engage contractors that could be put towards other priorities.”

What Energy Bill Relief Scheme.
When Immediately (announced earlier this month).
Comment The Government will provide businesses and non-domestic energy users, including schools, hospitals and charities, with a discount on energy prices for six months.

National insurance
What 1.25% rise in National Insurance to be reversed.
When November 6th 2022.
Comment The Government is reducing Class 1 and Class 4 National Insurance contributions (NICs) by 1.25 percentage points from November and cancelling the introduction of the Health and Social Care Levy. This was set to be introduced in April 2023, and proved to be one of the most controversial policy announcements of Boris Johnson’s premiership, as the Government had pledged not to increase NI in its election manifesto.

However, Liz Truss spent much of the recent leadership contest pledging to reverse this policy. The Government says the move enables almost 28 million people to keep an extra £330, on average, of their money next year.

The cost of living crisis

What Energy Price Guarantee (EPG).
When Immediately (announced earlier this month).
Comment The Government has pledged to limit the unit price that consumers pay for gas and electricity, which means typical annual household bills will be £2,500 for the next two years. This is on top of the previously announced plan to give all households £400 towards their bills this winter.

As part of the Energy Price Guarantee, the Government will also cover environmental and social costs, as well as green levies, currently included in domestic energy bills, for two years.

Other measures

Alcohol duty
What Planned duty increase for beer, cider, wine and spirits scrapped.
When February 1st 2023.
Comment Duty rates for beer, cider, wine and spirits will be frozen, which the Government believes will support businesses and help consumers with the cost of living.

An 18-month transitional measure for wine duty has also been announced, while draught relief will be extended to cover smaller kegs of 20 litres and above, which the Government says will help smaller breweries.

VAT-free Shopping
What VAT-free shopping for overseas visitors.
When No date confirmed.
Comment A digital VAT-free shopping scheme, designed to boost the high street and create jobs in retail and tourism, will be introduced. Under the scheme, overseas visitors to the UK will be able to purchase items VAT-free. Although no date has yet been confirmed, Mr Kwarteng said he wants to see this put in place as soon as possible.

Universal Credit
What Tighter rules on Universal Credit.
When January 2023.
Comment Universal Credit claimants who earn less than the equivalent of 15 hours a week at the National Living Wage will have to regularly meet with their work coach and actively take steps to increase their earnings, or risk having their benefits cut. The Government believes this will bring a further 120,000 people into the more intensive work search regime.

Industrial Action
What Trade unions will have to put pay offers to members.
When No date confirmed.
Comment The Government will legislate to require trade unions to put pay offers to a member vote, so that strikes can only be called once negotiations have genuinely broken down. Legislation to ensure Minimum Service Levels can be put in place for transport services, so that strike action does not prevent people getting to and from work, will also be introduced.

Infrastructure planning legislation
What New laws to simplify infrastructure planning rules.
When No date confirmed.
Comment Legislation to simplify the planning system for major infrastructure projects is to be put forward, as the Government believes the existing process is “too slow and fragmented”.

Mr Kwarteng said the time it takes to get consent for “nationally significant projects is getting slower, not quicker, while our international competitors forge ahead”.

He therefore wants to streamline assessments, appraisals, consultations and regulations, and review the Government’s business case process to speed up decision-making.

A list of infrastructure projects to be prioritised for acceleration has been published, covering sectors such as telecoms, energy and transport.

Reforms to the pension charge cap
What Pension Charge Cap no longer to apply to well-designed performance fees.
When No date confirmed.
Comment Draft regulations to remove well-designed performance fees from the occupational defined contribution pension charge cap will be brought forward.

The Government believes this will unlock pension fund investment into UK assets and innovative, high growth businesses, and ensure savers benefit from higher potential investment returns.

Reaction to the speech

Reaction to the Chancellor’s speech was – as we have already seen – sharply divided. Many right-wing commentators could not contain their excitement, while those on the left derided it as a ‘Budget without numbers’ and one that would benefit ‘only the rich’.

Writing in the Telegraph, Allister Heath described Kwarteng’s statement as “the best Budget I have ever heard a Chancellor deliver, by a massive margin”. He added that “hardcore, unapologetic liberal Toryism is back”, before praising the Chancellor for his commitment to “a flatter and simpler tax system”.

Across the political divide, the Resolution Foundation accused Kwarteng of ‘blowing the Budget’ with half of his planned tax cuts going to ‘the richest 5%’. The £45 billion package, the Foundation said, would ‘raise interest rates and see an additional £411 billion of borrowing over five years’.

There was plenty of reaction from other think tanks and lobbying groups too. Unsurprisingly, the Taxpayers’ Alliance called the speech ‘the most tax-friendly Budget in recent memory’. Adding a cautionary note on excessive spending, Chief Executive John O’Connell wrote: “Taxpayers will be delighted with a Budget that eases the burden on their bottom lines and promises a growth game changer.”

The Adam Smith Institute was similarly enthusiastic, saying that the Mini Budget was ‘the first step to getting the British economy back on track’. Head of Research Daniel Pryor said: “The planned increase in Corporation Tax would have hammered business, choked off investment and reduced workers’ wages. It’s also encouraging to see the Chancellor understands the importance of capital allowances.”

Meanwhile, Director of the Institute for Economic Affairs Mark Littlewood commented: “This isn’t a trickle-down Budget, it’s a boost-up Budget. It’s refreshing to hear a Chancellor talk passionately about the importance of economic growth, rather than rattling off a string of state spending pledges.”

Not everyone, though, was reaching for the champagne. The Resolution Foundation added the note that growth in the short term ‘is in Putin’s hands rather than ours’.

Director of the Institute for Fiscal Studies Paul Johnson welcomed the cuts to stamp duty, but drew worrying parallels with Anthony Barber’s 1972 ‘dash for growth’ Budget, which ‘ended in disaster’ and was now ‘acknowledged as the worst of modern times’.

The left-wing Momentum organisation’s take on the announcements was even simpler, and used just six words: “The Tories have declared class war.”

What about the markets? There are, of course, many other factors acting on the FTSE-100 index of leading shares and the pound, but the pound went into free fall after the Chancellor’s statement, and by the following Monday morning, it had fallen to a record low against the dollar.

Conclusions

Kwasi Kwarteng didn’t waste time in his first major speech as Chancellor. He spoke for just 25 minutes, starting by dealing with the cost of energy and then proceeded to rattle off a string of tax cuts.

“We won’t apologise,” he said in conclusion, as he dismissed the ‘tax and spend’ approach of previous governments, both Conservative and Labour. “Our entire focus is on making the UK more competitive in a fiercely competitive global economy.”

Depending on your political standpoint, you may regard the statement as “the best Conservative Budget since 1986”, as Nigel Farage described it, or perhaps you feel nervous about the Chancellor’s decision to ‘gamble on the biggest tax cuts in half a century’.

What is certain is that the new PM and her Chancellor will not be changing course. As Mr Kwarteng sat down, your immediate reaction might have been to wonder what further tax cuts he would introduce in his March Budget. According to the Sunday papers, we may not have to wait even that long. ‘Truss plans to cut taxes again in the New Year’ was the Sunday Telegraph headline, and the Express was rather more forthright with ‘Chancellor: You ain’t seen nothing yet’.

Former Chancellor George Osborne always made the same point in his Budget speeches: whatever measures he took, the UK could easily be blown off course by factors beyond his control. Right now, that “fiercely competitive global economy” includes the conflict in Ukraine, increasing tensions between the US and China, energy prices that are far higher than they were a year ago, increasing base rates to counter inflation and seemingly endless supply chain problems.

So the world – and the global economy – may look very different by the time Kwasi Kwarteng rises to present his March Budget. Rest assured though, that whatever happens in the next six months, we will – as always – keep you fully up to date with all the news, and how it impacts your savings, investments and long-term financial planning.

You’ve worked hard to be able to afford to send your child to university, and now the time has come for them to fly the nest and strike out on their own.

So naturally, you’ll want them to start their adult life with good financial habits. Here are a few bits of wisdom you could share with your son or daughter before they head off to uni, so they can truly fulfil their potential and make the most of their university experience.

Stay on top of what’s coming in and out
It’s really important that students keep a close eye on how much money is going into their account, such as student loans and any parental support that you might be providing. At the same time, they need to closely monitor what’s going out, such as council tax payments, utility bills, rent, food and mobile phone bills.

Once your son or daughter knows how much is going in and out of their bank account, they need to know how to budget, so they don’t get through their money too quickly, turn to credit cards and slip into debt, or – heaven forbid – get in touch with you asking for more funds to tide them over.

If your child gets into the habit of keeping track of their income and outgoings, they’ll have a clear idea of what’s left to spend on other things that enhance the university experience, such as going out with friends, buying new gadgets and enjoying trips and holidays.

There are plenty of apps to help them with budgeting, such as HyperJar Kids, Rooster Money, GoHenry and Gimi, so that’s a good place to start, along with simply writing all their spending down on paper.

Budgeting is vital at the best of times, but as the cost of living crisis bites, it’s more important than ever that your child knows how much money they’ve got and where it’s going.

According to a recent study by The Student Room, half of young people starting university in September are worried about affording things, while just 15 per cent don’t believe they’re at all affected by the rising cost of living.

Significantly, half of those polled said they felt financial skills, such as budgeting, were the most important thing missing from the school curriculum. That certainly suggests young people want some guidance and tips on how to manage their money, so they might be particularly receptive to any help you can provide as they prepare to live independently for the first time.

Teach them to become savvy shoppers
As your son or daughter prepares to get used to managing on a limited budget, it would be well worth teaching them a few tips to save pounds and pennies where they can. For example, do they know where to find discount coupons or that it’s cheaper to buy own-brand products in supermarkets rather than expensive branded goods?

At the same time, it would be well worth making sure they’re aware of how the cost of just a few small purchases can quickly add up. For instance, if they spend £4 on a coffee every weekday morning, that adds up to £20 a week, or £80 a month. Encouraging them to look at their finances in this way could help them to look again at their spending habits and make changes, which would then free up cash that could be much better used or even put into savings.

Work pays
Many students get part-time work to help them make ends meet during term time, which helps them afford the lifestyle they want to enjoy at university, as well as gain new, transferable skills that can bolster their CVs.

By encouraging your son or daughter to do the same, you could help them have a much more fulfilling university experience, and at the same, they’d gain invaluable skills that would set them up well for their future career.

Encourage them to speak about money
Money can be something of a taboo subject, but this unwillingness to talk about an issue we all have to deal with helps no-one. After all, your son or daughter might find themselves in a flat or house share with other students, and they need to feel confident raising financial issues if and when it becomes necessary.

At the same time, they should feel it’s okay to ask for help if they find themselves in serious difficulties, without any sense of shame or embarrassment. Again, this could make a big difference later on, as taking away the taboo around money will encourage young people to seek out the help and advice they may need in the future, perhaps from a friend, relative or a professional financial adviser.

You want your son or daughter to flourish as they begin their adult lives in earnest by living away from home for the first time, and we understand that. But good financial management is critical to making that happen, so they can make the most of these very special years and also understand the responsibilities that come with adult life.

A happy retirement doesn’t just happen by itself. You’ve got to make it happen, and that involves lots of careful planning and asking yourself what you really want from your post-working life.

The most obvious answer to that question is money, as we’ll all want financial security when we retire.

But that’s not all. We’ll want financial freedom too, so we can enjoy the life we want to live, and perhaps the one we’ve always dreamed of, without having to count the pennies.

That leads us nicely on to the other factors that contribute to a happy retirement.

For example, many will prioritise living in a desirable area, with house prices that they can afford, good amenities close by, such as shops and healthcare, low crime rates and plenty of green spaces locally.

Some, meanwhile, might also want to enjoy an active lifestyle, so they’d choose somewhere that offers opportunities to enjoy their chosen hobbies and pastimes, volunteer or build a social group with like-minded people.

If these things are of value to you, it’s really important that you consider them as you plan for retirement and make sure you’re saving or investing enough money. Otherwise, you may not be able to afford to live in an area that offers what you want.

Retirement should be a special time, when you can relax, indulge in leisure pursuits and enjoy precious family moments free of worry. But that’s less likely to happen if you haven’t taken the appropriate steps to maximise your income in later life, and worked out exactly how much you’re likely to need to do the things you want to do.

A financial planner can work with you to put together a bespoke retirement plan,, with your circumstances, needs, priorities and goals being considered every step of the way.

With the right advice and support, you’ll be in a much better position to set up your finances in a way that pays off for you in retirement.

Couples who live together but aren’t married sometimes refer to their boyfriend or girlfriend as their common law partner. But what does that actually mean in legal terms?

Well, to be blunt, not a lot, as you’re not related to your partner either by blood or by marriage. So if you die suddenly, they won’t automatically inherit your assets.

The only way to be sure that your partner will receive your wealth in the event of your death, without getting married, is to make sure you have a Will in place.

With a legally binding Will, you can lay out exactly how you want all your money, property, investments and other assets to be distributed after you die. That means you have the option of leaving some or all of your wealth to your partner, even if you’re not married.

But if you die without a Will, the Rules of Intestacy state that your inheritance must go to your closest living blood relatives.

That could conceivably mean that if you’ve been cohabiting with a partner for many years and have children together, the children would be first in line to receive your inheritance, and your partner wouldn’t have any right to inherit anything at all.

Naturally, that could be very distressing to your partner, at a time when they’d already be coping with a massive personal loss and possibly struggling financially without the income that you’d normally contribute to the household.

So if you’re not planning to get married, you should at the very least draw up a valid Will, to ensure your partner inherits whatever you want to leave to them.

It’s a simple way to guarantee that your partner is financially protected in the event of your death, and making certain that a distressing situation isn’t made significantly worse.

Common law marriage is a common myth
More and more couples are choosing to live together, purchase a property and have children without getting married.

In fact, it’s the fastest growing family type in England and Wales, with the number of couples cohabiting more than doubling to 3.6 million in the last quarter of a century. That means about one in five couples currently living together aren’t married.

But worryingly, many people don’t realise that cohabiting doesn’t bring any legal protection, such as an automatic claim to a partner’s estate if they die.

According to recent figures from the Women and Equalities Committee, 46 per cent of people in England and Wales mistakenly assume that cohabitants living together form a common law marriage, automatically gaining rights equal to a marriage or civil partnership.

As a result, it’s calling for changes in the law, such as providing cohabitants with the right to inherit under the rules of intestacy, and reviewing the Inheritance Tax scheme so that cohabiting partners are placed on an equal footing with married couples and civil partners.

The committee has also recommended the government “urgently” launch a public information campaign, as the prevalence of common law marriage can have “significant consequences, with many falsely believing they have legal protections which turn out to be non-existent”.

Caroline Nokes, chair of the Women and Equalities Committee, said: “The reality of modern relationships is that many of us choose – for a vast number of reasons – not to get married, even when in a committed, long-term relationship.

“It is completely unfair that these individuals have inferior protections to their married or civilly partnered peers. Deciding not to marry is a valid choice, and not one which should be penalised in law.”

Of course, there is no guarantee that the committee’s recommendations will be implemented by the government, and if it were the case, it could be many years away.

So for now, it’s really important that you make sure you know exactly what your rights are and take appropriate steps to make certain your wishes are fulfilled in the event of your death, such as writing a Will.

It could make a huge difference to you, your partner and your wider family, and give you a level of protection and certainty that can be invaluable.

If you have any questions about managing your wealth and how you can make sure your assets go to your chosen beneficiaries, please don’t hesitate to get in touch with us.